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Are Financial Advisors worth it?

An article on Financial Advisors, Trust, and accepting some humility

9 August 2017

ABOUT A 9 minutes READ

Money is a funny thing. When you don’t have it, you stress about paying the bills – when you do have it, you worry that you’re going to lose it (or be conned out of it), and end up worrying about paying the bills all over again.

This editor has a fairly lengthy history of trying to help other people make good money decisions and my personal observation as to the single biggest barrier to accepting good financial advice – is Trust.

Without finding someone who you can unreservedly place your resolute and uncompromising trust in, you’ll always find yourself second guessing your money decisions (or theirs) at best; worst case is you’re too naive to even notice your shortcomings. The unnerving part of it all, is that the results of poor investment decisions are generally only felt many, many years later, or when the unthinkable happens, and payouts don’t match expectations.

The irony is that whether we feel qualified or not, every one of us uses money every day, and for some people, they view this as akin to being qualified at making great money decisions that go beyond just the groceries they put in their shopping trolley.

After all, I brush my teeth twice a day, doesn’t mean I feel any more qualified to attending to my advanced dental needs.

“Trust me…I’m a Financial Advisor”

Part of the problem I suspect, in terms of knowing who to turn to for advice, is the lack of clear distinction as to what a personal financial planner / advisor actually is. My friend Jon can call himself a “Wealth Manager”, doesn’t mean he’s any more qualified to manage your wealth than say Sam, the guy who sells amazing dried sausage at GoGos in Newlands.

The industry has relied to date on regulating the giving of ‘financial advice’ by way of legislation, but people are still free to call themselves what they want to. To some extent, advisors have then relied on professional qualifications to differentiate themselves from other people claiming to offer the same services, and trusting then that the public will value their credentials, as being an indication as to what their skillset really is.

Humility

We wrote a previous piece on Personal Finance DIY, but as we stressed, DIY doesn’t mean do it ALL yourself. Personal finance DIY is about finding a balance between accepting accountability for your own financial future, but appreciating that you cannot know it all, and that there are good professionals out there who will help you find an excellent solution for your financial challenges.

If there is one good example of where ‘spending money to make money’ actually holds true and isn’t just a clever sounding thing to say, it’s in paying for good financial advice. Personal financial decisions permeate almost all aspects of our lives. How much house we choose to buy and how much we’ll likely end up paying on our bonds for the next 20 years, where we invest our money and what our investment returns subsequently look like, as well as how we choose to spend our income in light of our relationship with our money.

We had some great feedback from one of our readers several months ago, however one comment they made that left us feeling somewhat dismayed, was an observation they had made around how we constantly bang on about financial advisors and why everyone should get one.

We’re here to tell it like is, but if it sounds as if we’re droning on, and the message isn’t taking root, then all the more reason to remind people just what it is that a financial advisor can, and cannot do for you. The decision is then yours to make as to whether or not you wish to engage with one, but please give us one more shot at trying to convince you.

There is a definite ‘expectation gap’, in terms of what the general public think that a financial advisor can do for you, vs. what is outside of their control and we trust that this article clears up any confusion.

So what CAN an advisor do for me?

As we said earlier, one Advisor is not necessarily as capable as any other Advisor, so items below would be contingent on that advisor having the requisite skillset to assist for that specific need.

Advisors can guide you through making optimal use of complex income tax legislation to minimize your tax liability and possibly even enhance your after-tax investment returns.

Advisors can comprehensively quantify the amount of life insurance, disability cover, and critical illness cover you might need, and advise you on an appropriate product. We have in the past written comprehensively on these products, and in this author’s opinion, these are some of the most complex financial products in existence.

Advisors can help you select an appropriate medical aid scheme that takes into account your family members’ chronic conditions, and unique needs.

Advisors can advise on a great Gap cover, which like a medical aid scheme are all quite different and should be selected on the merits of their characteristics relative to you and your family’s unique medical profiles.

Advisors can put together a holistic financial plan, which includes long-term retirement planning, goals, and strategies.

Knowing just how much one needs to retire, need not be an exercise in tea leaves and coin tossing. A good advisor can fairly accurately quantify what your retirement financial needs might be, and quantify in today’s money, just how much you’re required to save to reach that goal.

An advisor can rebalance your portfolio on an annual basis and help you stick to your investment plan.

Advisors can assist with drawing up your will.

Advisors can be engaged to select appropriate investment products for you, including things like Retirement annuities and unit trusts.

Changing jobs, might leave you with a handsome pension or provident fund balance; knowing where to put that until the day you retire, is something that an advisor can advise upon.

Debt can easily become insurmountable. A good advisor can assist you with working your way out of a crippling situation.

Risk is not to be avoided if you want any chance at a healthy long-term retirement balance. Rather, risk should be managed. A good advisor will help you manage your investment risk through the appropriate diversification across appropriate asset classes.

Short-term insurance can be so complex, that I’ve never personally bothered to try and understand it. I defer all my short-term insurance needs to my insurance Zen Master.

If getting money offshore is on your list of personal financial needs, an advisor can help you find investments that are suitable.

Watching a chunk of your salary vaporize as PAYE every month is difficult enough to swallow, getting a monthly R1, 000 admin tax penalty for not filing your tax return is game over. A registered tax practitioner can submit your tax return, and keep you on the straight and narrow. For those of us who are lazy, or like to know that it’ll get done right the first time, there’s always TaxTim.

An Advisor can trawl through and audit your old policies and unit trusts, and help you decide what might still be relevant.

So what can an advisor NOT do for me?

They cannot guarantee your investment returns. A good advisor will commit to nothing in so far as investment returns go, unless it’s specifically a guaranteed return and that guarantee is from a bona fidefinancial institution. If someone claims to know what the market is going to do, you might want to consider finding someone else.

Paying for the invisible

It is also extremely important to remember that in the course of your investing horizon, there exists an infinite number of alternate realties, wherein you made an infinite number of alternate investment decisions as to where you invested your money and how it performed. You’ll never know what any of these might have yielded, and therein lies a noteworthy point of consideration.

We rely on financial advisors, not just to do the measurable and observable items we’ve listed above, but to also help us stick to our well-thought out investment plans. One could only guess as to the effects of a panicked sell when political uncertainty made you question your advisor’s recommendations, leading you to sell every unit trust you owned, only for the situation to casually blow over, leaving just yesterday’s newspaper and your ill-conceived financial blunder as a reminder as to why we have structured and well thought out investment plans in the first place.

Limiting your gauge as to whether or not the fees you paid your advisor was ‘worth it’, relative to the performance of your investment portfolio is not fair. To do this, would require you to equally consider what your investment portfolio might have yielded, had you gone off on your own tangent and succumbed to the human biases that makes being human, one of the biggest obstacles to long-term investing.

So back to the issue of trust

I don’t know why I trusted the orthopedic surgeon to fix my broken leg, who I’d only briefly met while high on painkillers, lying on the Emergency Room observation bed – but I did.

I would only see him hours later after surgery, but there was this implicit and assumed level of trust that he was suited to the job and had the requisite level of skill and experience.

Expecting to experience that same level of implied trust for someone calling themselves a “financial advisor” is understandably never going to happen, so we’re here to help you find someone who IS qualified, experienced, and has the ability to demonstrate a history of being just that.

Given the broad range of skillsets, qualifications, and proficiencies that financial advisors can have, and with everyone under the sun calling themselves a ‘financial advisor’, ‘rain maker’, and ‘all round good guy’, we thought we’d put together a really great (if we say so ourselves) financial advisor search tool, that will help you find a financial advisor who is best suited for your specific needs.

If you’re not sure what to look for when selecting an advisor, there is a comprehensive FAQ section that will guide you in selecting the right person, as well as help you make sense of how the financial advisor industry works. You can read testimonials from advisors’ happy clients, and even search for an advisor near you.

We hope that our hard work helps you out.

The search tool will go live shortly and we’ll let you know when it does.